Example research essay topic: Stock Options Six Months - 1,147 words

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When a company fails to demonstrate good results in sales or incomes, it can choose a way of artificial increasing of revenues. One of methods is to make fake profits, playing with timing differences; it can be implemented by (1) recording incomes earlier and (2) recording spending's later. Such sort of frauds can be classified as the following: (a) recording incomes when the accounting period is ended, (b) recording incomes when service is not fully rendered and (c) shipping goods before the sail is complete. To find out such infringements takes a lot of diligence and professional skepticism from an auditor when examining the recordings.

In case (1) auditor has to check out the accuracy of bills, invoices and sales orders, its worth to select some transactions and examine all its documents during the time of fulfillment, compare the data in all records, their correspondence to each other in timing, conduct a cut-off test by controlling the orders in the end and beginning of period. In case (2) company may hide unpaid bills till the beginning of a new period, in such case auditor needs to interview responsible employees about possible infringements and record the information received. Consider the situation, if the company made recent stock issues or borrowings. Don Sheelan from CFO had invested his own funds to receive interest from Regina Vacuum Cleaner, a company with steel reputation.

It was necessary to pay good money for buying Regina's stocks, and Sheelan wanted to get the money from Regina's revenues. Together with his team, he decided to modernize product lines and launch new improved vacuum cleaners. But, again money was in need for building of such a new line, so management created a plan of fake increasing of incomes of the company and making the stock price higher. Sales managers changed the dates of invoices and shipments for earlier period; also they recorded shipping consignment merchandise as sales. Such policy had good results, though it was very risky, but thanks to Regina's crystal reputation, attention of auditors wasnt attracted. Very soon, new vacuum cleaners were launched and, supported with ad campaigns, sales began giving sticking results.

But then problems started: plastic parts of vacuum cleaners didnt work well and customers began returning vacuums back to companys stores. Sheelan suffered economical crisis, moreover, he was waiting for coming auditing control. For the first controls the company hided from auditors a great deal of returned vacuums and related documents. But, as sales were going worse, growing returns and low profits caused big blots on Regina's reputation. Auditors interest to the company increased and sooner or later the frauds had to be revealed. Having that understood, Sheelan and his team decided to hire an attorney, who could not find any solution.

Regina's managers accepted their guilt in court; the loss reached $ 40 million. Auditors may learn some lessons from this story. First, the frauds had to be discovered earlier, auditors could be more precise in examining of economic and financial situation. They could find a key with considering of private financial situation of Regina's management asking them i. e. to submit papers of their tax returns.

Second, the auditors had to study companys business and not to trust infinitely in its reputation, especially when another manufacturer emerged. Controllers had to pay good attention to innovations in companys product and see, how it had influenced on sales, incomes and other indexes. Third lesson is: the lack of attention to loading docks of the company can cause non-proper audit. Any product or item being delivered to or from loading dock has a lot of papers to document this. So, shipping or receiving personnel must be fairly asked about possible frauds. The last lesson is: an auditor must always think about possible motives for a company to make economical or material infringements.

Auditors must not get lost in reports and invoices data and think analytically, what could happen if the company had had something to conceal? Using of these recommendations will help auditors to reach a good success in their work. Many companies, especially in telecommunication, used to compensate the work of their employees with stocks, which give to the latter the opportunity to buy a number of shares at a definite price for a definite time. It such a way business received investments, those transactions were not connected with cash, that influenced on taxes of companies. But nowadays due to drastic changes and falls at stock markets, some new ways to protect own stock-keepers from losses must be found by employers. The most effective strategies for this are (1) repricing stock options, (2) reissuing options by scheme six months and one day later and (3) issuing restricted stock or other payment programs.

The majority of the companies are choosing the strategy of repricing, it seems logical to correct the price of own stocks in response to market changes. Such policy must be implemented very carefully because of FASB Interpretation no. 44, Accounting for Certain Transactions Involving Stock Compensation, (interpretation to APB Opinion no. 25, Accounting for Stock Issued to Employees). Under Interpretation no. 44, adopted in July 2000. Under this Interpretation companies have to apply variable award accounting to repriced stock options, that makes options variable for accounting and any lowering of its price will be charged from earnings. Second strategy is called as slow motion or du jour: according to accounting rules companies are allowed to reissue their stock options at a lower price after six month and one day after canceling of such options.

This strategy is successful and widely applicable, it allows to make repricing without any extra expenses (as to FASB Interpretation no. 44) and doesnt influence on shares of stock-keepers. But six months is rather long period to wait, many changes may happen in circumstances. Third strategy is the least popular; a company can cancel options and compensate them with restricted stocks. Value of such stocks can be written off for four years and variable accounting can be avoided. For employees, restricted stock consists of grants of actual shares and be confiscated or fully vested by long employment for a specified period. Also a company may choose a strategy of issuing more stock options on top of underwater options.

When the situation at stock market was not that critical, both employers and employees as stock-keepers were satisfied and accordant. Prices for stocks were rising and employees could see a good compensation for their work. Options served as a retention instrument, when prices were growing up. Now, as prices slump, employees are losing their positive motivation, turnover and income of companies became less dependent on stocks and more cash transactions take place. It is not easy to find an effective strategy even among the ones described above in condition of present situation at the market, thats why preferable financial strategy now is concentrated on short-termed compensation.

Research essay sample on Stock Options Six Months